Bitcoin hits $16,000 as Smart Money Continues to Accumulate
Bitcoin saw a $2,500 move in 36 hours.
However, on-chain and technical data suggests that headwinds are ahead for bitcoin as the market self-corrects in preparation for the next grind higher.
Let’s dig in.
Smart money is accumulating bitcoin
On-chain data from Glassnode shows an uptick in bitcoin entities’ growth. Bitcoin entities are a sophisticated way of gauging new bitcoin wallets. The metric aggregates address clusters in order to generate an accurate number of bitcoin holders, also known as entities.
The below data shows a significant spike in bitcoin entity addresses (orange line), which occurred in tandem with bitcoin’s continued surge in price. Specifically, the orange line shows the rate of investors coming in per hour — a trend which has not been seen since the 2017 bull run.
Meanwhile, the Spent Output Profit Ratio (SOPR) suggests that bitcoin could enter into a cool-down period. Briefly, the SOPR is a simple indicator calculated from spent outputs. It is the realised value (USD) divided by the value at creation of the output, or simply: price sold / price paid.
When the SOPR is greater than 1, it means that the owners of the spent outputs are in profit at the time of the transaction. Otherwise they are at a loss.
Currently, the daily SOPR is marginally greater than 1, indicating that bitcoin is ready to consolidate gains. In recent history, investors took profits when the SOPR was at these levels.
While this data is not necessarily bearish, it places a temporary cap on immediate climbs in price.
At the same time, however, the volume of coins taken off exchanges by buyers has been off the charts. Per data from CryptoQuant, bitcoin exchange reserves have more or less been inversely proportional to price appreciation.
This is organic bitcoin growth. New buyers are entering the market, purchasing bitcoin and moving their coins into various custodial solutions. In other words, long-term price-action is not being dictated by derivative exchanges and more by simple supply and demand pressures. Smart money is buying bitcoin at these prices.
Technically speaking
Bitcoin closed a phenomenal weekly candle at $15,500 after topping out at $16,000, firmly holding onto gains in the first week of November. This sets the tone for expectations of a pullback as investors rake in profits and new-coiners enter the market.
On the daily time-frame, bitcoin has back-tested the upwards trending channel which held after an abrupt sell-off to $14,350.
The Relative Strength Index (RSI) and Money Flow Index (MFI), both of which measure momentum are in over-bought territory on the daily time-frame. Briefly, the RSI measures the average gain or loss during a specific time period and plots this on an oscillator. The MFI is a similar indicator which also takes into account traded volume on a particular exchange. Typically, the higher the volume,the more relevant the price-action.
In the event that bitcoin pulls back, the first area to eye will be the 20-daily EMA ($14,000), which price has yet to test. Should a deeper correction be in the works, then one could assume that bitcoin will re-enter the channel to test the 50 and 200 EMA’s (orange and blue lines, respectively). While unlikely, such a scenario would confirm a ‘fake-out’ event which would speak to a more drawn-out correction.
Overall, bitcoin remains bullish but price needs to settle beforehand. The most likely scenario is a week of consolidation before price makes any decisive moves.
bear in mind that bitcoin’s supply is currently being swallowed by investors — a topic that’s frequently covered in the blog section.
Two metrics to keep an eye on are the derivative funding rates as well as hash ribbon indicators. These are two highly accurate ‘buy signals’ which typically indicate that bitcoin is ready for another leg higher.
Catch you next time.
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Originally published at https://mailchi.mp.
